Archive for November, 2011

It looks like a bubble, moves like a bubble: remember the last property bubble? Or the 2000 Tech Bubble? Or maybe the 1600s’ Tulips bubble 🙂 They all have few things in common: crazy demand combined with easy money and fuelled by speculation on one side and on another side an overhyped target (property, tech startup, tulip bubble). Result? As this article about the Tulip mania () puts it: “Soon even ordinary bulbs were selling for extraordinary prices, and the actually rare bulbs were astronomical”. Sounds familiar?

– Easy money: If you’re reading this article, I bet that you know at least one person who’s “starting a VC Fund”.Even a 21-year-old fresh grad wants to start a 100Mn VC Fund. I’m not hinting that it’s bad to start a VC Fund but unless you’re really doing something to improve the quality and/or quantity of supply (i.e. startups) you’re just messing with the Supply & Demand equation and sending prices through the roof. In the words of Sequoia Capital’s Douglas Leone: “Right now there’s an incredible amount of capital. Why you want to join the capital side is beyond me.”

– Hype: If you think we’re not in a hype of “social media and digital” investment I would love to hear your proof. Take Groupon’s IPO, would it have been feasible without a real hype around it? Aren’t many deals taking place just because everybody is fearing to miss out and just want to jump on the bandwagon of investing in tech startups, betting that valuation will keep skyrocketing?
Speaking of hype, remember how everybody cheered for Groupon’s “successful” IPO 3 weeks ago? In just 3 weeks, Groupon has shed one-third of its market value in less than one week and wiped out nearly $6 billion in shareholder wealth.

– Crazy valuations: here’s an extract from Yelp’s S1 filing:“We have incurred significant operating losses in the past, and we may not be able to generate sufficient revenue to achieve or maintain profitability. Our recent growth rate will likely not be sustainable, and a failure to maintain an adequate growth rate will adversely affect our results of operations and business;”
Valuation? “between $1 billion and $2 billion”!

“This time it’s different”: the signature of any bubble… Real estate prices will always go up, technology companies are the future, gold will always be a safe investment, etc… We heard it all before and we saw bubbles bursting every time more intensely.

Is this time really different? Bubbles always burst when one of the underlying factors reverses course. It took one buyer not showing up to pay for his bulb to burst the Tulip bubble and some mortgage defaults to burst the biggest financial bubble of all times.
Wouldn’t one less-than-expected IPO spread panic and dry appetite for tech investment? Or wouldn’t continually growing valuations reach a point where someone in the value chain realizes that there’s no way to exit leading the money flow to shut down?